Use the Information for the Question(s)below

question 54

Essay

Use the information for the question(s)below.
KD Industries has 30 million shares outstanding with a market price of $20 per share and no debt.KD has had consistently stable earnings,and pays a 35% tax rate.Management plans to borrow $200 million on a permanent basis through a leveraged recapitalization in which they would use the borrowed funds to repurchase outstanding shares.
-Assume the following tax schedule:
Personal Tax Rates

Considering the effect of personal taxes,calculate the PV of the interest tax shield provided by KD's recapitalization in 2005.

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Definitions:

Work in Process

Goods that are in various stages of the production process, but which are not yet finished products.

Requisition

An official request or demand for goods or services, typically within an organizational setting.

Storeroom

A room or area where materials, goods, supplies, etc., are kept for future use.

Work in Process

Goods that are currently being manufactured but are not yet completed, representing a stage between raw materials and finished goods inventory.